Bradford v. Rockwell Semiconductor ( 2001 )

Filed: January 24, 2001
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 99-2201
(CA-98-169-7-F)
John Bruce Bradford,
Plaintiff - Appellant,
versus
Rockwell Semiconductor Systems, Incorporated,
Defendant - Appellee.
O R D E R
The court amends its opinion filed January 22, 2001, as
follows:
On the cover sheet, section 7, line 1 -- counsel’s name is
corrected to read “Kristen Gardner Lingo.”
For the Court - By Direction
/s/ Patricia S. Connor
Clerk
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
JOHN BRUCE BRADFORD,
Plaintiff-Appellant,
v.
No. 99-2201
ROCKWELL SEMICONDUCTOR SYSTEMS,
INCORPORATED,
Defendant-Appellee.
Appeal from the United States District Court
for the Eastern District of North Carolina, at Wilmington.
James C. Fox, District Judge.
(CA-98-169-7-F)
Argued: December 4, 2000
Decided: January 22, 2001
Before NIEMEYER, WILLIAMS, and TRAXLER, Circuit Judges.
_________________________________________________________________
Affirmed by published opinion. Judge Williams wrote the opinion, in
which Jude Niemeyer and Judge Traxler joined.
_________________________________________________________________
COUNSEL
ARGUED: Kristen Gardner Lingo, MANNING, FULTON & SKIN-
NER, P.A., Raleigh, North Carolina, for Appellant. Curtis Lee Mack,
MCGUIRE, WOODS, BATTLE & BOOTHE, L.L.P., Atlanta, Geor-
gia, for Appellee. ON BRIEF: David B. Kahng, MCGUIRE,
WOODS, BATTLE & BOOTHE, L.L.P., Atlanta, Georgia, for
Appellee.
_________________________________________________________________
OPINION
WILLIAMS, Circuit Judge:
John Bradford first filed for arbitration and later filed suit in the
United States District Court for the Eastern District of North Carolina
against Rockwell Semiconductor Systems,1 1 alleging that Rockwell
discriminated against him on the basis of his age in discharging him
from employment. The district court granted Rockwell's motion for
summary judgment and enforced the mandatory arbitration provision
in Bradford's employment agreement, notwithstanding a fee-splitting
provision that required Bradford to pay half of the arbitrator's fees
and costs. Bradford argues on appeal that the fee-splitting provision
renders the arbitration agreement unenforceable because the prohibi-
tive costs of arbitration have prevented him from vindicating his stat-
utory rights in the arbitral forum. Because Bradford has failed to show
that the costs of arbitration were prohibitive or that he was deterred
from pursuing his statutory rights, we affirm.
I.
Bradford was employed by the Brooktree Corporation, which was
acquired by Rockwell. Rockwell offered him continued employment
and sent him a "Mutual Agreement to Arbitrate Claims." (J.A. at 68-
71.) The agreement provided that
Except as otherwise provided in this Agreement, the Com-
pany and the Employee hereby consent to the resolution by
arbitration of the following claims or controversies for
which a court otherwise would be authorized by law to grant
relief . . . . The Claims covered by this Agreement include,
but are not limited to, claims for wages or other compensa-
tion due; claims for breach of any contract or covenant,
express or implied, tort claims; claims for discrimination,
including but not limited to discrimination based on race,
sex, religion, national origin, age, marital status, handicap,
disability or medical condition, claims for benefits, . . . and
_________________________________________________________________
1 Rockwell is now known as Conextant Systems.
2
claims for violation of any federal, state or other govern-
mental constitution, statute, ordinance or regulation.
(J.A. at 39.) The "Arbitration Procedures," which were attached to
and referenced by the arbitration provision, provided that
To ensure that the Arbitrator is not biased in any way in
favor of one party because that party is paying all or most
of the Arbitration fees and costs, the parties shall share
equally the fees and costs of the Arbitrator. Each party will
deposit funds or post other appropriate security for its, his
or her share of the Arbitrator's fee, in an amount and man-
ner determined by the Arbitrator, 10 days before the first
day of hearing. Each party shall pay for its own costs and
attorney's fees, if any. However, if any party prevails on a
statutory claim which entitles the prevailing party to attor-
ney's fees, or if there is a written agreement providing for
fees, the Arbitrator may award reasonable attorney's fees to
the prevailing party in accordance with such statute or
agreement.
(J.A. at 74 (emphasis added).) Bradford signed the agreement. On
September 25, 1996, the day before the closing of the Brooktree
acquisition, Rockwell informed Bradford that it would not employ
him. Believing that his discharge was based upon age discrimination,
Bradford filed a charge with the EEOC. On August 13, 1998, Brad-
ford received a right to sue letter from the EEOC.
The procedural history of Bradford's claims follows two parallel
routes because he pursued his claims both in arbitration and then in
the district court. On February 12, 1998, Bradford filed a demand for
arbitration with the American Arbitration Association ("AAA"),
alleging that his termination violated the ADEA, breached his
employment contract, and violated the public policy of North Caro-
lina. On May 17 and 18, 1999, Bradford presented witnesses at the
arbitration hearing, and on October 20, 1999, the arbitrator ruled
against Bradford and dismissed his claims.
On September 23, 1998, while his arbitration was still pending,
Bradford filed a complaint in the United States District Court for the
3
Eastern District of North Carolina alleging the same claims as were
brought before the arbitrator. On July 30, 1999, the district court
granted Rockwell's motion for summary judgment, concluding that
Bradford had failed to meet his burden of demonstrating that the arbi-
tration agreement was unenforceable against him because he had
failed to offer any competent evidence that fee splitting would cause
him financial hardship.2
2 On August 27, 1999, Bradford filed a notice
of appeal.
II.
Bradford argues that fee-splitting provisions necessarily render
arbitration agreements unenforceable as a matter of law because, by
requiring employees to pay part or all of the arbitration costs, such
provisions deter employees who have been victims of discrimination
from pursuing their rights, thus undermining the remedial and deter-
rent purposes of the federal antidiscrimination statutes.3 3 Although
Bradford concedes that he signed the arbitration agreement and that
he initiated and received the full benefit of arbitration of his statutory
claims, he asserts that we should adopt a per se rule that all arbitration
agreements with fee-splitting provisions are unenforceable, irrespec-
tive of actual individual deterrence, based upon the overall deterrent
effect of such provisions. Bradford also argues that even if he was
required to show individual financial hardship and actual deterrence,
the district court erred in concluding that he failed to do so. We
review the district court's grant of summary judgment de novo. Austin
v. Owens-Brockway Glass Container, Inc., 78 F.3d 875, 877 (4th Cir.
1996).
Congress passed the Federal Arbitration Act (FAA), ch. 213, 43
Stat. 883 (1925) (codified as amended at 9 U.S.C.§ 1 et seq.), in
order to "reverse the longstanding judicial hostility to arbitration
agreements that had existed at English common law and had been
adopted by American courts, and to place arbitration agreements upon
_________________________________________________________________
2 The district court assumed for the purpose of its analysis that a proper
showing of financial hardship could render an arbitration agreement
unenforceable.
3 Bradford does not argue that the arbitration agreement is unenforce-
able in any other respect.
4
the same footing as other contracts." Gilmer v. Interstate/Johnson
Lane Corp., 500 U.S. 20, 24 (1991). The FAA manifests "a liberal
federal policy favoring arbitration agreements," Moses H. Cone
Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983), and
thus, "[w]hen a valid agreement to arbitrate exists between the parties
and covers the matter in dispute, the FAA commands the federal
courts to stay any ongoing judicial proceedings and to compel arbitra-
tion," Hooters of America, Inc. v. Phillips , 173 F.3d 933, 937 (4th Cir.
1999) (internal citations omitted). The benefits of arbitration are well-
documented. For example, we have previously noted that "[t]he arbi-
tration of disputes enables parties to avoid the costs associated with
pursuing a judicial resolution of their grievances. By one estimate, lit-
igating a typical employment dispute costs at least $50,000 and takes
two and one-half years to resolve." Id. at 936. Accordingly, "parties
agree to arbitrate and trade `the procedures and opportunity for review
of the courtroom for the simplicity, informality, and expedition of
arbitration.'" Id. (quoting Gilmer , 500 U.S. at 31).
Federal statutory claims, such as claims under the ADEA, can be
subjected to mandatory arbitration agreements. See Gilmer, 500 U.S.
at 35. In Gilmer, the Supreme Court reasoned that agreements requir-
ing arbitration of ADEA claims are enforceable because arbitration
provides an adequate alternative forum to litigation in court through
which claimants can resolve their statutory claims. See id. at 28. Thus,
the Court concluded that "[s]o long as the prospective litigant effec-
tively may vindicate his or her statutory cause of action in the arbitral
forum, the statute will continue to serve both its remedial and deter-
rent function." Id. at 28 (alternations omitted).
Relying upon Gilmer's rationale that statutory claims can be
resolved in arbitration because arbitration is an adequate alternative
forum to litigation, some courts have concluded that fee-splitting pro-
visions render arbitration agreements unenforceable because the cost
of fee splitting deters or prevents employees from vindicating their
statutory rights in arbitral forums. See Paladino v. Avnet Computer
Technologies, Inc., 134 F.3d 1054, 1062 (11th Cir. 1998) (citing Gil-
mer and concluding that high costs of arbitration that may be imposed
against an employee provide a legitimate basis for nullifying an arbi-
tration agreement in part because "the arbitrability of [statutory
claims] rests on the assumption that the arbitration clause permits
5
relief equivalent to court remedies. When an arbitration clause has
provisions that defeat the remedial purpose, therefore, the arbitration
clause is not enforceable." (internal citations omitted)); Cole v. Burns
Int'l Sec. Servs., 105 F.3d 1465, 1483-85 (D.C. Cir. 1997) (relying
upon Gilmer and stating that employers cannot require as a condition
of employment that employees waive access to a neutral forum in
which to resolve their statutory claims and that arbitration is not a rea-
sonable substitute for a judicial forum if the employee must pay for
the arbitrator because "they would never be required to pay for a
judge in court").
Other courts, however, have refused to conclude that fee splitting,
by itself, necessarily renders an arbitration provision unenforceable.
See Williams v. Cigna Financial Advisors, Inc., 197 F.3d 752, 763-64
(5th Cir. 1999) (stating that "[i]n our opinion, . . . Gilmer does not so
clearly imply that no part of arbitral forum fees may ever be assessed
against federal anti-discrimination claimants, although it plainly indi-
cates that an arbitral cost allocation scheme may not be used to pre-
vent effective vindication of federal statutory claims," and upholding
an arbitration agreement that required a Title VII claimant to pay half
of the costs), cert. denied, 120 S. Ct. 1833 (May 1, 2000); Rosenberg
v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 15-16 (1st
Cir. 1999) (refusing to invalidate arbitration scheme simply because
of the possibility that the arbitrator would charge the plaintiffs a
forum fee "which may be as high as $3,000 per day and tens of thou-
sands of dollars per case," because, among other reasons, "arbitration
is often far more affordable to plaintiffs and defendants alike than is
pursuing a claim in court"); Koveleskie v. SBC Capital Markets, Inc.,
167 F.3d 361, 366 (7th Cir. 1999) (same), cert. denied, 528 U.S. 811(Oct. 4, 1999); Arakawa v. Japan Network Group, 56 F. Supp.2d 349,
354-55 (S.D.N.Y. 1999) (same).4
4
_________________________________________________________________
4 We have not addressed this specific issue in a published opinion.
Rockwell, however, points to our decision in EEOC v. Waffle House, 193
F.3d 805 (4th Cir. 1999), to argue that we have previously enforced arbi-
tration agreements with fee-splitting provisions. Although it is true that
the dissent in Waffle House discussed the fee-splitting provision in the
arbitration agreement, see id. at 817 n.8 (King, J., dissenting) ("If an
arbitration agreement requires the employee to pay a portion of the arbi-
trator's fees -- which often may amount to thousands of dollars -- an
6
Notably, although the courts and the parties differ on the extent to
which fee splitting automatically renders an arbitration agreement
unenforceable even absent any showing of individual hardship or
deterrence, it is undisputed that fee splitting can render an arbitration
agreement unenforceable where the arbitration fees and costs are so
prohibitive as to effectively deny the employee access to the arbitral
forum. See Green Tree Financial Corp.-Alabama v. Randolph, 121
S. Ct. 513, 522 (2000) ("It may well be that the existence of large
arbitration costs could preclude a litigant such as Randolph from
effectively vindicating her federal statutory rights in the arbitral
forum."). The question, therefore, is whether we should apply a case-
by-case basis inquiry in making this determination, or whether we
should apply a broad per se rule against all fee-splitting irrespective
of the circumstances surrounding each individual's case.
Bradford relies primarily upon the D.C. Circuit's decision in Cole
to argue that a per se rule should apply. In Cole, the D.C. Circuit
applied a per se rule against fee splitting regardless of individual
financial hardship and deterrence, reasoning that "an employee can
never be required, as a condition of employment, to pay an arbitra-
tor's compensation in order to secure the resolution of statutory
claims under Title VII (any more than an employee can be made to
pay a judge's salary). If there is any risk that an arbitration agreement
can be construed to require this result, this would surely deter the
bringing of arbitration and constitute a de facto forfeiture of the
employee's statutory rights." Cole, 105 F.3d at 1468 (footnote omit-
ted). Thus, the Cole court concluded that"[t]he only way that an arbi-
tration agreement of the sort at issue here can be lawful is if the
employer assumes responsibility for the payment of the arbitrator's
compensation." Id. Cole premised its objection to fee splitting on the
assumption that employees, by agreeing to fee splitting, essentially
agree "as a condition of employment to waive access to a neutral
_________________________________________________________________
accessible forum is, in effect, unavailable, because of the disincentive to
arbitrate created by such fees. Under these circumstances, an employee
like Mr. Baker is unlikely to pursue his statutory claims." (internal cita-
tion omitted)), there is no indication in the majority opinion that the fee-
splitting provision was briefed by the parties or addressed by the panel
majority. Thus, Waffle House does not guide us in deciding this question.
7
forum in which statutory employment discrimination claims may be
heard." Id. at 1482. The Cole court's position can be summarized as
follows:
Under Gilmer, arbitration is supposed to be a reasonable
substitute for a judicial forum. Therefore, it would under-
mine Congress's intent to prevent employees who are seek-
ing to vindicate statutory rights from gaining access to a
judicial forum and then require them to pay for the services
of an arbitrator when they would never be required to pay
for a judge in court.
There is no doubt that parties appearing in federal court
may be required to assume the cost of filing fees and other
administrative expenses, so any reasonable costs of this sort
that accompany arbitration are not problematic. However, if
an employee like Cole is required to pay arbitrators' fees
ranging from $500 to $1,000 per day or more, in addition to
administrative and attorney's fees, is it likely that he will be
able to pursue his statutory claims? We think not. .. . These
fees would be prohibitively expensive for an employee like
Cole, especially after being fired from his job, and it is
unacceptable to require Cole to pay arbitrators' fees,
because such fees are unlike anything that he would have to
pay to pursue his statutory claims in court. Arbitration will
occur in this case only because it has been mandated by the
employer as a condition of employment. Absent this
requirement, the employee would be free to pursue his
claims in court without having to pay for the services of a
judge. In such a circumstance--where arbitration has been
imposed by the employer and occurs only at the option of
the employer--arbitrators' fees should be borne solely by
the employer.
Id. at 1484-85 (internal citations and footnotes omitted).
Bradford also points to the Tenth Circuit's decision in Shankle v.
B-G Maintenance Mgmt. of Colorado, Inc., 163 F.3d 1230 (10th Cir.
1999), which relied upon Cole to hold an arbitration agreement unen-
8
forceable because of a mandatory fee-splitting provision. The Shankle
court stated that
[t]he Agreement . . . placed Mr. Shankle between the pro-
verbial rock and a hard place -- it prohibited use of the judi-
cial forum, where a litigant is not required to pay for a
judge's services, and the prohibitive cost substantially lim-
ited use of the arbitral forum. Essentially, B-G Maintenance
required Mr. Shankle to agree to mandatory arbitration as a
term of continued employment, yet failed to provide an
accessible forum in which he could resolve his statutory
rights. Such a result clearly undermines the remedial and
deterrent functions of the federal anti-discrimination laws.
Id. at 1235 (internal citations omitted). Notably, although Shankle
found that the fee-splitting provision rendered the arbitration agree-
ment unenforceable, it framed its analysis in terms of the complaining
party's actual inability to afford the arbitration costs and fees. See id.
at 1234 ("Assuming Mr. Shankle's arbitration would have lasted an
average length of time, he would have had to pay an arbitrator
between $1,875 and $5,000 to resolve his claims. Mr. Shankle could
not afford such a fee, and it is unlikely other similarly situated
employees could either.").
The courts that have explicitly rejected Cole's per se rule in favor
of a case-by-case approach have reasoned that although Gilmer
"plainly indicates that an arbitral cost allocation scheme may not be
used to prevent effective vindication of federal statutory claims," it
does not require the conclusion that "no part of arbitral forum fees
may ever be assessed against federal anti-discrimination claimants."
Williams, 197 F.3d at 763. Accordingly, these courts view the perti-
nent question under Gilmer as whether fee splitting prevents the
claimant from effectively vindicating his statutory rights, not whether
fee splitting can, in the abstract, deter some claimants from vindicat-
ing their rights regardless of the individual circumstances of each
case. These courts read Gilmer as making clear that
a party agreeing to arbitrate a federal statutory claim does
not forgo the substantive rights afforded by the statute, and
that claims under federal statutes are appropriate for arbitra-
9
tion so long as the prospective litigant effectively may vin-
dicate his or her statutory cause of action in the arbitral
forum, and the statute will continue to serve both its reme-
dial and deterrent function. Gilmer, and the cases upon
which it relies, make clear that whether a federal statutory
claim can be subjected to compulsory arbitration depends
upon whether the particular arbitral forum involved pro-
vides an adequate substitute for a judicial forum in protect-
ing the particular statutory right at issue.
Williams, 197 F.3d at 763 (emphasis added and internal citations
omitted). In other words, these courts focus upon whether the particu-
lar claimant has a full and fair opportunity to vindicate his statutory
claims. See id. at 764. This inquiry necessarily turns in part upon
whether the claimant is able to pay his share of the forum fees at issue
or whether the forum fees in a particular case are so prohibitively
expensive as to deter arbitration. See id. ("In the present case, Wil-
liams has not demonstrated that the arbitrators' order that he pay one-
half of the forum fees prevented him from having a full opportunity
to vindicate his claims effectively or prevented the arbitration pro-
ceedings from affording him an adequate substitute for a federal judi-
cial forum. The evidence in this case does not indicate that Williams
is unable to pay one-half of the forum fees or that they are prohibi-
tively expensive for him."); Rosenberg, 170 F.3d at 15-16 (rejecting
argument that arbitration agreement could not be enforced because of
fee splitting).
We agree with Williams that the crucial inquiry under Gilmer is
whether the particular claimant has an adequate and accessible substi-
tute forum in which to resolve his statutory rights and that Gilmer
does not call for the conclusion that fee splitting, in all cases, deprives
the claimant of such a forum. We believe that the appropriate inquiry
is one that evaluates whether the arbitral forum in a particular case is
an adequate and accessible substitute to litigation, i.e., a case-by-case
analysis that focuses, among other things, upon the claimant's ability
to pay the arbitration fees and costs, the expected cost differential
between arbitration and litigation in court, and whether that cost dif-
ferential is so substantial as to deter the bringing of claims. See Wil-
liams, 197 F.3d at 764 (focusing upon the inability to pay; whether
the forum fees created a prohibitive expense; whether Williams had
10
a full opportunity to vindicate his claims; and whether the forum fees
prevented the arbitral forum from providing an adequate substitute for
the judicial forum); Rosenberg, 170 F.3d at 16 (focusing in part upon
the cost differential between arbitration and litigation); Shankle, 163
F.3d at 1235 & n.4 (focusing in part on the fact that Shankle and simi-
larly situated employees could not afford the fee and rejecting argu-
ment that fee-shifting provision mitigated the burden because "the
Agreement does not actually shift responsibility for payment of fees
based on ability to pay"). Although the Cole court framed its concern
with fee-splitting partially in terms of the fact that arbitrators' fees are
"unlike anything that [a claimant] would have to pay to pursue his
statutory claims in court" because a claimant normally "would be free
to pursue his claims in court without having to pay for the services
of a judge," Cole, 105 F.3d at 1484-85, we believe that the proper
inquiry under Gilmer is not where the money goes but rather the
amount of money that ultimately will be paid by the claimant. Indeed,
we fail to see how a claimant could be deterred from pursuing his
statutory rights in arbitration simply by the fact that his fees would
be paid to the arbitrator where the overall cost of arbitration is other-
wise equal to or less than the cost of litigation in court.5
5
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5 The cost of arbitration, as far as its deterrent effect, cannot be mea-
sured in a vacuum or premised upon a claimant's abstract contention that
arbitration costs are "too high." Rather, an appropriate case-by-case
inquiry must focus upon a claimant's expected or actual arbitration costs
and his ability to pay those costs, measured against a baseline of the
claimant's expected costs for litigation and his ability to pay those costs.
Another factor to consider in the cost-differential analysis is whether the
arbitration agreement provides for fee-shifting, including the ability to
shift forum fees based upon the inability to pay. We note that parties to
litigation in court often face costs that are not typically found in arbitra-
tion, such as the cost of longer proceedings and more complicated
appeals on the merits. See Rosenberg v. Merrill Lynch, Pierce, Fenner
& Smith, Inc., 170 F.3d 1, 16 (1st Cir. 1999) (concluding that the mere
possibility that the claimant would have to pay up to tens of thousands
of dollars in forum fees did not warrant nullifying arbitration agreement
in part because "arbitration is often far more affordable to plaintiffs and
defendants alike than is pursuing a claim in court"); cf. Gilmer v. Inter-
state/Johnson Lane Corp., 500 U.S. 20, 31 (1991) ("Although these pro-
cedures might not be as extensive as in the federal courts, by agreeing
to arbitrate, a party trades the procedures and opportunity for review of
the courtroom for the simplicity, informality, and expedition of arbitra-
tion.").
11
Our conclusion that the proper inquiry is a case-by-case analysis
rather than a per se rule is bolstered by the Supreme Court's recent
decision in Green Tree Financial Corp.-Alabama v. Randolph, 121
S. Ct. 513 (2000). In Green Tree, the Court addressed "whether an
arbitration agreement that does not mention arbitration costs and fees
is unenforceable because it fails to affirmatively protect a party from
potentially steep arbitration costs." Id. at 517. In resolving this ques-
tion, the Court recognized that "[i]t may well be that the existence of
large arbitration costs could preclude a litigant such as Randolph from
effectively vindicating her federal statutory rights in the arbitral
forum." Id. at 522. The Court noted, however, that "the record does
not show that Randolph will bear such costs if she goes to arbitration.
Indeed, it contains hardly any information on the matter." Id. Accord-
ingly, the Court stated that
[t]he record reveals only the arbitration agreement's silence
on the subject, and that fact alone is plainly insufficient to
render it unenforceable. The "risk" that Randolph will be
saddled with prohibitive costs is too speculative to justify
the invalidation of an arbitration agreement. To invalidate
the agreement on that basis would undermine the liberal
federal policy favoring arbitration agreements. It would
also conflict with our prior holdings that the party resisting
arbitration bears the burden of proving that the claims at
issue are unsuitable for arbitration.
Id. (internal quotation marks and citations omitted and emphasis
added). The Court further stated that "[w]e have held that the party
seeking to avoid arbitration bears the burden of establishing that Con-
gress intended to preclude arbitration of the statutory claims at issue.
Similarly, we believe that where, as here, a party seeks to invalidate
an arbitration agreement on the ground that arbitration would be pro-
hibitively expensive, that party bears the burden of showing the likeli-
hood of incurring such costs. Randolph did not meet that burden." Id.(internal citations omitted). In other words, the Green Tree Court
rejected Randolph's argument because Randolph could not satisfy her
burden of establishing that she was likely to incur prohibitive costs
that would deter her from arbitrating her claims. We believe that the
Green Tree Court's focus on each individual claimant's "burden of
proving that the claims at issue are unsuitable for arbitration," its
12
emphasis on Randolph's inability to show that she was in fact likely
to incur prohibitive costs, and its refusal to nullify the arbitration
agreement based upon an abstract and speculative risk that the claim-
ant might, under some circumstances, incur prohibitive costs, is sig-
nificant. Id. The Green Tree Court's refusal to accept the speculative
risk that a claimant might incur prohibitive costs undermines the
rationale of those courts that would impose a per se prohibition
against an arbitration provision that might impose prohibitive costs
against an individual on the theory that any such risk of prohibitive
costs, even if that risk is entirely uncertain, surely deters the bringing
of arbitration.
Although Green Tree involved a slightly different fact situation
than the present case because it involved an arbitration agreement that
remained silent on the issue of costs as opposed to explicitly requiring
fee-splitting, we believe that it is nevertheless instructive because it
clearly analyzed the issue before it -- whether the possibility of fee-
splitting precludes a litigant from effectively vindicating her federal
statutory rights in the arbitral forum -- in terms of the individual liti-
gant and the arbitration agreement before it, rather than in terms of
a broad per se rule that would nullify or invalidate an entire category
of arbitration provisions. Notably, the Green Tree Court suggested
that some showing of individualized prohibitive expense would be
necessary to invalidate an arbitration agreement on the ground that fee
splitting would be prohibitively expensive, although it did not decide
that issue. See id. at 522-23 ("How detailed the showing of prohibitive
expense must be before the party seeking arbitration must come for-
ward with contrary evidence is a matter we need not discuss . . . .").
We believe that the Green Tree Court's focus on Randolph's individ-
ualized costs and, by inference, the individualized deterrent effect
arising from those costs, cautions against adopting the broad per se
rule sought by Bradford.
III.
Having concluded that a case-by-case inquiry, rather than a per se
rule, is more appropriate for determining the enforceability of an arbi-
tration agreement that contains a fee-splitting provision, we now
address whether the district court erred in granting Rockwell's motion
for summary judgment based on a finding that Bradford failed to
13
show any evidence of financial hardship. Reviewing the district
court's grant of summary judgment de novo, Austin v. Owens-
Brockway Glass Container, Inc., 78 F.3d 875, 877 (4th Cir. 1996), we
agree that Bradford has failed to demonstrate any inability to pay the
arbitration fees and costs, much less prohibitive financial hardship, to
support his assertion that the fee-splitting provision deterred him from
arbitrating his statutory claims.
In the present case, Bradford has offered no evidence that he was
unable to pay the $4,470.88 that he was billed by the AAA, or that
the fee-splitting provision deterred him from pursuing his statutory
claim or would have deterred others similarly situated.6 6 See Williams,
197 F.3d at 764. To the contrary, the evidence shows that rather than
being deterred, Bradford himself initiated arbitration, and he concedes
that he received a full and fair arbitration hearing that adjudicated his
case on the merits, although he ultimately did not prevail before the
arbitrator. We, of course, recognize that there are some circumstances
under which "the existence of large arbitration costs could preclude
a litigant such as [Bradford] from effectively vindicating [his] federal
statutory rights in the arbitral forum." Green Tree, 121 S. Ct. at 522.
But, this is not such a case. Indeed, this case presents a paradigmatic
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6 Bradford argued before the district court that he filed for arbitration
"despite the financial hardship and his preference for a judicial forum,"
(J.A. at 61), and that "[t]he deterrent effect of these costs is evident in
the fact that [he] waited until February 12, 1998 to file his demand for
arbitration." (J.A. at 64.) Bradford also argued that arbitration costs
would be $800 per day, along with a $2,000 deposit with the AAA as
security for his portion of the costs. Bradford, however, has failed to
offer any evidence of the expected cost of litigation or that he suffered
any hardship as a result of the arbitration agreement, except for the con-
clusory assertions that he preferred federal court over arbitration and that
"arbitration would be significantly more expensive than the costs in fed-
eral court." (J.A. at 60.) We note that Bradford was earning $115,000 in
base salary at the time of his discharge and, in addition, he had "consis-
tently earned sales incentives averaging $53,000 per year for the past
three years" prior to his discharge. (J.A. at 44.) We also note that the fee-
splitting provision permits the prevailing party to recover attorney's fees
where provided by statute or written agreement, although it is unclear
whether the agreement permits the arbitrator to award arbitrator's costs
and forum fees to the prevailing party.
14
example of why fee-splitting should not be deemed to automatically
render an arbitration agreement unenforceable because Bradford was
in no way deterred from attempting to vindicate his rights by means
of a full and fair arbitration proceeding. Invalidating the arbitration
provision now, after the arbitrator has already ruled upon his claim,
would simply give Bradford a second bite of the apple under circum-
stances in which there is no evidence that allowing him to pursue his
litigation in court would cost him any less than the amount of money
that he has already spent in arbitration.7
7 Accordingly, we affirm the
district court's grant of summary judgment in favor of Rockwell.
_________________________________________________________________
7 It therefore makes sense that the individual who claims to be finan-
cially burdened by the fee-splitting provision should raise his objections
to the fee-splitting arrangement, including a specific forecast of his
expected costs and his expected financial burden, prior to the beginning
of arbitration. Here, however, Bradford demanded arbitration first, and
then, almost six months later, filed his complaint in district court.
Although the complaint mentioned the existence of the agreement to
arbitrate, it did not seek to invalidate the agreement or question the valid-
ity of the fee-splitting provision. In fact, Bradford raised the issue for the
first time in his response to Rockwell's motion to dismiss the complaint
-- a response that was filed after Bradford presented witnesses in sup-
port of his claim at the arbitration hearing, but before a decision had been
rendered. Under these circumstances, it is clear that the fee-splitting pro-
vision in fact did not deter Bradford from pursuing his rights. Therefore,
even if we accepted Bradford's unsupported assertion that the cost of fee
splitting in this case was unduly burdensome, we believe that he would
not be entitled to another chance to litigate the same claims, but instead
would be entitled to, at most, a refund of the excess fees that he paid. Cf.
Green Tree Financial Corp.-Alabama v. Randolph, 121 S. Ct. 513, 525
(2000) (Ginsburg, J., dissenting) ("The Court's opinion, if I comprehend
it correctly, does not prevent Randolph from returning to court, post arbi-
tration, if she then has a complaint about cost allocation. If that is so, the
issue reduces to when, not whether, she can be spared from payment of
excessive costs." (emphasis added)). Indeed, we note that the arbitration
agreement explicitly provides that "[i]f any provision of this Agreement
is adjudged to be void or otherwise unenforceable, in whole or in part,
such adjudication shall not affect the validity of the remainder of the
Agreement." (J.A. at 69.)
15
IV.
In conclusion, we agree with those courts that have applied a case-
by-case inquiry as to whether mandatory fee-splitting renders an arbi-
tration agreement unenforceable. We believe that such an approach is
particularly appropriate in a situation where, as here, the complaining
party not only initiated arbitration, but he also received the full benefit
of arbitration proceedings and cannot demonstrate any resulting finan-
cial hardship. For these reasons, we affirm the district court's grant
of summary judgment in favor of Rockwell.
AFFIRMED
16